Carole Walker directs the Rocky Mountain Insurance Information Association.
Carole Walker directs the Rocky Mountain Insurance Information Association.
John Johnston

The Michigan Way

Although no-fault auto insurance was once seen as a cure for expensive policies and endless litigation, it's been far from perfect. The no-fault law in Michigan, however, seems to be working better than most and is arguably kinder to motorcycle riders than any similar measure in the country. But while insurance reformers in Colorado have taken notice of Michigan's success and are considering its approach here, they've yet to embrace the motorcycle component.

To Larry Katkowsky, a Detroit-area attorney specializing in insurance law who also happens to own two classic Harleys and a BMW, that's a pity. "Michigan has the purest no-fault system in the country," he says. "Subrogation for the most part is a non-factor, and there's a lot of protection for all insured motorists, motorcyclists included."

There are three main differences between Colorado no-fault law and the Michigan variety, Katkowsky says. Both states have what's known as a minimum-claim threshold -- a burden that must be overcome in order to bring a lawsuit against a negligent party. In Colorado, the threshold is a monetary damage amount: $2,500.

But those in the insurance industry feel that this threshold is far too low and doesn't serve as much of an impediment to lawsuits. "If you get into a crash, all you need to do to nullify the no-fault law is rack up $2,500 in pain and suffering," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association. "And with costs these days, that's very easy to do."

In Michigan, by contrast, the threshold consists of words, not numbers; its so-called verbal threshold gives accident victims the right to sue only if they can show they've experienced "serious impairment of the bodily function" or "permanent serious disfigurement." This has the effect of cutting back on lawsuits, which the insurance industry loves: Walker and Bill Imig, Colorado counsel for the National Association of Independent Insurers, both speak positively about verbal thresholds. Better still, Katkowsky contends, injured individuals aren't shortchanged, because "the system in Michigan provides that, in the event of an accident, no matter what the degree of injury, the automobile insurance carrier must pay for all the medical expenses not covered by any primary insurance for the passengers of that vehicle -- for life, if necessary." Other benefits include up to three years of lost wage benefits that max out at around $3,600 per month.

Unlike its Colorado counterpart, Michigan's no-fault law also features what's known as a catastrophic-claims fund. Every insured Michigan motorist pays into this pool of cash -- fees over the years have fluctuated between a low of around $5 per policy annually to a high of over $100 -- which is available to reimburse no-fault carriers when expenses exceed $250,000. Vladimir Konstantinov of the Detroit Red Wings, who was badly hurt in a limousine crash four years ago, is the most famous beneficiary of the fund, but he's hardly alone: According to figures obtained by the Detroit News, $1.4 billion was given out to 3,529 crash victims between 1978, when the fund was established, and the end of 1997.

The fund has occasionally stirred controversy. Some locals have complained that paying into the kitty jacks up their insurance costs, which, as Katkowsky says, "are smack dab in the middle of rates nationwide. They're not the highest; they're not the lowest." In addition, the monies collected haven't always been administered as closely as many Michiganites might have expected, leading to the late-'90s discovery that the fund had ballooned to a gargantuan $2.5 billion in size. In the end, motorists received $180 refunds.

And the final difference? It involves motorcycles and personal-injury protection insurance, or PIP. Automobile drivers in both Michigan and Colorado are required to pony up for PIP, while motorcyclists in the two states aren't; bikers can ride after purchasing liability insurance only. But thanks to a Michigan Supreme Court ruling, if a motorcyclist is hurt in an accident with an auto, the car driver's PIP covers anyone on the motorcycle, passengers included. "The Supreme Court recognized that motorcyclists are rarely at fault in motorcycle vs. automobile accidents," Katkowsky says. "Motorcycles are at fault only about 20 percent of the time. So the legislature provided that motorcyclists who are involved in accidents with automobiles will receive no-fault benefits payable by the carrier, regardless of fault."

The regulation that resulted doesn't assist motorcyclists in single-vehicle wipeouts or motorcycle-on-motorcycle collisions, crash categories that account for only about a quarter of total motorcycle accidents. But every motorcyclist who contributes to the catastrophic-claims fund is eligible to benefit from it in the event of a devastating injury.

This aspect of the Michigan system represents an obvious advantage for motorcyclists over no-fault in Colorado, yet pro-motorcycle groups in the state, such as ABATE of Colorado and BIKEPAC, haven't been pushing legislators to adopt such a policy. Likewise, the Colorado Trial Lawyers Association, which decries many aspects of subrogation, opposes verbal thresholds of the sort used by Michigan. Dave Diepenbrock, director of legal services for the association, acknowledges that the Michigan system may result in modest savings for consumers: In 1997, $71.03 of the average automobile-insurance bill for Michigan drivers was attributable to expenses related to bodily injury, as opposed to $86.46 in Colorado. "But," Diepenbrock continues, "to save that fifteen bucks, we'd have to radically diminish the accountability of the at-fault or bad driver -- and that's not what people want. In opinion poll after opinion poll, when people are asked if they'd like cheaper auto insurance they'll say, 'Yes.' But if they're asked, 'What if bad drivers wouldn't be held accountable?' they'll say, 'No!'"

The catastrophic-fund notion, meanwhile, is strongly advocated by the Brain Injury Association of Colorado. "The cost of rehabilitation has gotten to the point where a lot of needed care isn't being covered by health-insurance policies," says the association's executive director, Helen Kellogg. "They may cover rehabilitation for a month or six weeks and offer some outpatient care, but people with serious or permanent injuries often need a lot more than that -- and in many cases, they're not getting it." Kellogg adds that the preliminary results of a forthcoming study commissioned by the Brain Injury Association and conducted by Dean Robert Lynch of the University of Northern Colorado supports this viewpoint.

The insurance industry doesn't, mainly because of the fear that a new fee will raise insurance prices. Lobbyist Imig puts it succinctly: "A catastrophic fund would be expensive and add a lot of cost to the system. And I think, ultimately, a lot of people will be concerned about that."

With so many influential groups at cross purposes, the chances that Colorado might adopt the Michigan method of no-fault seem slim. But Detroit's Katkowsky urges all sides to consider the system with open minds. "There are benefits in terms of care, and with the bottom line, too," he says. "It works."


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